Diamond Midstream Improving Efficiency, Says Bain

RAPAPORT... Tough market conditions are forcing diamond traders and
manufacturers to adjust their business models amid sluggish consumer demand, according
to a report by management consultancy Bain & Company.

While miners’ sales of rough diamonds to the midstream
leapt 20% in 2016, global diamond-jewelry sales were stable for the year, Bain
said in this week’s report, which it produced in collaboration with the Antwerp
World Diamond Centre (AWDC). As a result, the cutting-and-polishing sector
recorded a slight drop in revenue.

Midstream diamond players are working to improve their
operations, focusing mainly on reducing the amount of time it takes to cut,
polish and sell goods, and on securing financing, the report said. Companies
are also introducing new technologies such as automated cutting processes and diamond
mapping to maximize yields.

“The midstream segment’s future health will depend on the
interplay of rough and polished prices as well as the segment’s ability to make
continued operational improvements,” explained Bain partner Olya Linde, an
author of the report, titled “The Global Diamond Industry 2017.”

Rough producers had a strong year in 2016, with the top
five miners’ combined operating profit rising 3%, Bain reported. Even so, rough
prices, which dropped in 2015, fell again in 2016, before increasing this
year.

Polished prices, however, have declined, with the RapNet Diamond Index
(RAPI™) for 1-carat diamonds falling 5.8% in 2015 and slipping 5% in 2016. RAPI
for that category slumped 6.7% in the first 11 months of this year.

“Continued softening demand could have significant
economic implications for entire nations that depend on the industry as one of
their sole sources of revenue,” Linde added.